- IPI growth remains steady in June. Malaysia’s industrial production index (IPI) was broadly unchanged at +4.3% YoY in June vs. +4.5% in May. In particular, IPI grew on the back of the manufacturing output, which advanced by 4.9% (May: +3.2%). Meanwhile, the mining sector slowed to 4.0% while the electricity segment fell by 2.3%. For the mining segment, the extraction of crude petroleum oils & condensates grew at a slower pace of 6.6% (May: +18.8%) while the production of natural gas reverted to +1.0% (May: -1.9%).

- Manufacturing gathers momentum. Manufacturing sector gained traction in June, partly driven by relatively healthier exports amid the weak Ringgit currency. Total exports surged by 5.0% YoY to RM64.3bil in June, following a contraction of 6.7% in May. Manufacturing output is a good proxy for quarterly GDP and a major component of IPI – accounting for 66% of total IPI. The improvement in factory output and sales of manufactured goods are attributable to stronger exports during the month. Overall manufacturing sales grew by 1.7% YoY to RM54.3bil in June, compared to -4.2% in the preceding month.

- Manufacturing PMI stays weak. Forward-looking indicators suggest that Malaysia’s manufacturing segment remains weak as monthly Purchasing Managers’ Index (PMI) contracted in July. The manufacturing PMI stood at 47.7 points in July, broadly unchanged from June’s reading of 47.6 and below the 50-threshold for four consecutive months. The manufacturing PMI is another leading indicator on the country’s performance in the manufacturing sector as well as exports of manufactured goods.

- Global manufacturers remain lacklustre. Growth in the global manufacturing sector remained lacklustre at the start of 3Q15. JP Morgan Global Manufacturing PMI stood at 51 points in July, unchanged from June. The headline index has been hovering below the long-run trend in recent months. New order was lacklustre, which suggests that soft growth may continue in the coming months in tandem with early signs that growth in consumer spending is losing growth traction. Elsewhere, manufacturing PMI in China had decreased slightly to 50 in July from 50.2 in June. As for the US, manufacturing PMI increased to 53.80 in July from 53.60 in June.

- Slowdown in economic activities in 2Q15. IPI grew at an average of 4.3% YoY in 2Q15, which is slower compared to the average growth rate of 6.5% in 1Q15. The overall economy slowed in 2Q15 on the back of the implementation of GST, which led to softer sales and production in the domestic-oriented manufacturing sector. Based on the latest statistical release for May 2015, IPI for domestic-oriented industries grew at a marginal pace of 0.7% vs. +3.6% in April. Also, the positive impact of stronger net trades is mitigated by the slowdown on the domestic front. GDP growth in 2Q15 had probably moderated to +4.3%, from +5.6% in 1Q15.

Source: AmeSecurities Research - 11 Aug 2015